If you're a first-time home buyer, getting a home loan may be difficult because you haven't been able to save up enough for a down payment. Your credit score is good, you have the income to make payments, but you'd rather not wait to save the minimum down payment that many conventional loans require. There are, however, a number of options available that allow getting a mortgage loan without needing a down payment.
Pros and Cons of No Down Payment
If you’re considering not putting money down on a house, remember there are both pros and cons associated with this tactic. The advantages are that you won’t have to dip into your savings. It could also enable you to get into the housing market immediately versus later with home prices continuing to rise.
This may sound very appealing, but you need to keep in mind that this also means that you won’t have any equity built up in your new home. Home repairs or improvements will probably need to take a backseat as you either built up equity to take out a line of credit, home equity loan or save up the money. It also means that you will be paying thousands of dollars more in interest.
No Down Payment Loan Options
Now that you have considered the advantages and disadvantages, you can explore zero down payment loan options. While federal regulations have tightened on the mortgage industry, there are still ways a home buyer can accomplish a little or no-money-down mortgage on their next home.
VA Loan Program
Members of the U.S. military and surviving spouses are eligible for the VA loan program guaranteed through the U.S. Department of Veteran Affairs. To qualify for the VA loan program, you must either be on active duty or an honorably discharged service personnel. If you have served at least six years in the National Guard or Reserves, that eligibility will also apply to you. The spouses of service members who have died in the line of duty are also included in this program.
If you live outside of a major city, more likely than not, you are eligible for a USDA loan. This housing program was created by the U.S. Department of Agriculture as an effort to help the development of rural communities. The word “rural” is used very loosely in this definition since it applies to many suburbs and college towns. The mortgage insurance premium (MIP) and mortgage rates also tend to be lower than other types of mortgage loans. Depending on the size of your loan, you might also be able to include eligible home improvements and repairs.
The Federal Housing Administration was created to minimize the requirements for a potential homeowner to get a mortgage loan and thereby increase homeownership. To be eligible for an FHA loan, you need a credit score of at least 620 and a down payment of 3.5%. You’re able to select from typically fixed rate mortgage terms or an adjustable rate if your credit qualifies. To get the down payment down to zero, the FHA will allow you to use gift funds from a relative, friend, or company to give you the full down payment amount.
Receive the Down Payment as a Gift
The final way you could potentially buy a house with no money down may require fortunate circumstances. If someone such as a family member gives you money, it can be used to satisfy your down payment. There are requirements involved with this that are set by your lender so you will need to follow their guidance. You will likely need to show a paper trail of the money that was gifted, including how it was given to you. This will be used to show that you can use it as a substitute for a down payment. Keep in mind that the type of loan you choose will determine the amount that you can be gifted and use as a down payment.
Buying a home is probably the most significant investment you will make in your life. If you want to get in contact with a NASB mortgage expert, you can call us at 855-465-0753 or get a free rate quote here.